This is a CU Colorado Springs student blog for urban economics the economics of social issues.

Friday, October 31, 2008

Should Government Intervene in the Automobile Industry for the Sake of Global Warming?

The automobile industry encompasses two fundamental issues at the forefront of the American society today—global warming and dependence on oil. The automobile industry uses vast amounts of oil and, thus, contributes to global warming through excessive carbon emissions. The question then arises, what should be done? Automobiles create externalities that cause environmental harm; should the government step in and regulate the industry? Or should the market be relied upon to correct for the environmental damages inflicted by cars? In his essay “How a Free Society Could Save Global Warming,” Gene Callahan advocates that corrections for global arming are more likely to result through free-market interactions, rather than government intervention. An argument against this point is whether or not the market will be able to adjust quickly enough. Environmental problems take some time to recognize and address (partially why global warming is just now becoming a public issue though it has been occurring for some time). Will the market be able to reflect the additional costs of environmental damage in a timely manner so that the problems can actually be halted and corrected? On the other hand, if government does regulate the industry, will it be able to do so in a manner that will correct for global warming? Government intervention also takes time, and there is no guarantee that government will “get it right.” If government decides to regulate the amount of emissions cars are allowed to produce, will they be able to establish the “correct” amount? (What would this amount be? And, how would they determine it?) Government, having less-complete information about the auto industry because they are outside of it, it seems, would be less likely to set the “efficient” amount of emissions. If they allow too much carbon emissions, global warming may not be corrected, and if they allow too few, that could negatively impact the industry and consumers. However, it could still be argued that any decrease in emission is better than no decrease or an increase. Besides regulating emissions, should government require auto producers to make more fuel-efficient vehicles or alternative-fuel vehicles to decrease oil consumption and the effects of global warming? In Chapter 13, “Conservation, Ecology, and Growth,” of For a New Liberty, Murray Rothbard argues that technological improvement will lead to a higher standard of living. Based upon his reasoning, it could be concluded that the technology of the automobile industry will improve to the point where vehicles will be more fuel-efficient or utilize alternative fuels because this would make people better-off (fuel would likely be less expensive and air pollution would decrease). The question again arises of whether or not these changes will take place through the market in a timely enough manner to preserves the environment, or whether government regulation is warranted and would be effective. Rising oil prices would increase the incentives for auto producers to develop alternative fuels and fuel-efficient vehicles, but if oil prices decline, these incentives are reduced. The development of new technology might then be delayed; meanwhile, cars continue to pollute the air and contribute to global warming. Government intervention (through regulation, or subsidies) could recreate incentives to continue the development of such technologies. Thus, the question remains, should government intervene in the automobile industry to correct for environmental damages, or should it be left to free-market interactions?